The impact of the banking sector development on the financial performance of the communication sector in sierra leone

3.3 Banking Theories 
Theories of banking in the early era of banking has not been conclusive and 
failed to capture the actual role that banks play in economic development and 
on how bank create money. The 2007 to 2009 financial crisis reignited 
scholars’ interest to determined the roles of banks in the economy and 
examined the functions of banks in creation of money. Many writers focused 
on the power of banks to create money ab initio. Professor Richard A. Werner, 
a professor of international banking and sustainable development at 
Southampton university in the United Kingdo
m, argued that, “Money creation 
by banks is a key causal factor driving economic performance and one that 
has been seriously overlooked in finance and economics”. (Werner, 2016) in 
his study proposed three (3) banking theories to established what banks 
actually do with money and they are as follows; 
3.3.1 Financial Intermedi
atıon Theory of Banking
Financial Intermediation literally means the fundamental process of channeling 
funds from one sector to the other. Thereby bridging the gap between the 
savers and the ultimate borrower. It also the process of pooling excess fund 
from the surplus and channeled to the deficit sector for production and other 
investment purposes. Banks do mobilized funds from savers and lenders at 
low interest and make them available to borrowers or the deficit group in form 
of loans and overdrafts to finance projects investment plans and other 
business-related activities at a higher rate. Banks in their nature and also in 
their intermediation role are expose to risk and if not appropriately handled 
would result to instability and crises eventually. 
The financial intermediation theory also postulates and emphasizes on the 
understanding that banks play no role in economic developmental activities, 
they are considered as a simple mediator between group for businesses, 
people with excess fund and to businesses, people who need funds on credit. 
The theory further indicated that banks are merely financial intermediaries that 
are not so different from other non-financial institutions. (Ravn, 2019) stated 
that, banks mobilize deposits and lend out to borrowers meaning that, banks 
borrow from depositors with short maturities and lend to borrowers at longer 

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maturities” (Werner, 2016, p. 362 cited in (Ravn, 2019)) also stated that banks 
cannot lend without deposits. (Werner, 2016) in his general theory stated 
clearly that saving first needed for investment to take place. This theory 
provides justification for not including the banking sector as players to 
economic development in as much as they are assumed not to play any 
substantial role in the economy.